Domestic brokerage house Emkay Global Financial Services, in its auto sales preview for the month of January 2023 believes that sales are likely to rise across segments. The channel checks indicate PV volumes to be higher on the healthy order book and ramp-up in production, it said.
According to the brokerage, commercial vehicles (CVs) are likely to maintain their double-digit growth momentum on better freight availability. In addition, tractor volumes are likely to be better at improving customer sentiments and finance availability. Lastly, 2-Wheelers’ (2W) volume growth is expected to be positive, supported by the festive season (Uttarayan) and marriage season demand, noted the brokerage
It remains constructive on the auto sector and its top preferred picks in the OEM space include Maruti Suzuki, Eicher Motor, Ashok Leyland, and Escorts.
The passenger vehicles (PV) industry’s volumes should witness robust growth (12 percent YoY) on account of a large order book and higher production, predicted Emkay.
"Uncertainties remain on the supply chain, but production is improving in a staggered manner. Its channel checks indicate that dealer inventories are notably below normal levels. Among OEMs, they estimate domestic volumes to grow by 55 percent YoY for M&M, 10 percent for Tata Motors, and 8 percent for Maruti Suzuki. Blended vehicle discounts have been reduced on MoM basis due to seasonality and remain lower than the peak levels seen in the past," said Emkay.
Meanwhile, the CV industry’s volumes should grow in double digits, up 13 percent YoY) with robust demand in both passenger and cargo segments. Transporters are buying trucks to get GST input credit and preponing purchases before the implementation of RDE/OBD2 norms, noted the report. Emkay Global expects 49 percent YoY growth for Eicher Motor-Volve Eicher Commercial Vehicle, 41 percent for Ashok Leyland, 6 percent for Tata Motors, and 4 percent for M&M in the domestic market.
Further, 2-Wheelers industry volumes are expected to improve by 7 percent YoY. As per the brokerage, the channel checks indicate that demand in the festive season and marriage season aided 2-Wheelers’ volumes in the latter part of the month, post the commencement of the auspicious period. Emkay Global expects domestic volumes to improve by 29 percent for Eicher Motor-Royal Enfield, 16 percent for TVS Motor, 8 percent for Hero Moto Corp Ltd, and 2 percent for Bajaj Auto.
Lastly, the tractor industry’s volumes are likely to register strong growth, up 13 percent YoY on improving customer segments and better finance availability, said Emkay. Crop prices are better YoY in the wholesale market for rice, wheat, and tur dal, among others. Minimum support prices (MSPs) are also better YoY, and government procurements are happening in proximity to farmers, resulting in lower logistics costs, it added. Emkay Global expects double-digit growth in domestic volumes, at 18 percent YoY for Escorts and 15 percent for M&M.
Outlook
Going ahead most analysts have mixed views on the space. While the pent-up demand is fading and the sector is facing rising interest rates and further price hikes expected the export; However, margin improvement is expected due to a decrease in commodity prices and price hikes.
Aniket Mhatre, Institutional Research Analyst, at HDFC Securities also believes the first half of 2023 is likely to be a mixed bag for the auto industry.
At one end, the sector demand remains at risk given high inflationary pressure, rising interest rates, and further price hikes expected to post the upcoming RDE norms wef April 2023. On the other hand, OEMs are likely to benefit from softening input costs, which would help cushion some or a large part of the above headwinds," he pointed out. In this scenario, Mhatre believes companies with a strong product pipeline would be able to outperform the market and emerge as major beneficiaries of a softening commodity cycle.
